Stocks Waver as U.S.-China Relations Keep Getting Worse

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The

Dow Jones Industrial Average

was up slightly as relations between the U.S. and China continued to fray, while Chinese regulators continued to crack down on its U.S.-listed companies.

The Dow added 51 points, or 0.15%, while the

S&P 500

rose 0.1% and the

Nasdaq Composite

was little changed.

But losses were ugly in China and Hong Kong, where the

Hang Seng

dropped more than 4%, and the

Shanghai Composite

dropped 2.3%.

Tencent

dropped as much as 8%, while

Tencent Music

(ticker: TME) slumped 1.9% after the State Administration for Market Regulation ordered the company to give up its exclusive music licensing rights, continuing a crackdown on competition. E-commerce platform operator

Meituan

dropped 11%, and Chinese internet giant

Alibaba

dropped 5% in late trade.

Prosus,

the technology investor in companies including Tencent, dove 7% in Amsterdam.

The private education sector though was in free fall, as China said educational training institutions were banned from raising money in the stock market and foreign capital cannot invest, in what’s clearly targeted at the wave of companies listing in the U.S.

New Oriental Education & Technology

dropped 47%,

China Beststudy Education

lost 41% and

Koolearn Technology

fell 33%. U.S.-listed Chinese education stocks including

TAL Education

and

Gaotu Techedu

tumbled Friday in anticipation of a crackdown.

“The sell-off today followed the news that the for-profit education/tuition sector is effectively being outlawed,” writes
Oliver Jones,
senior markets economist at Capital Economics. “The moves matter more for what they say about policymakers’ overall priorities and approach.” 

Adding to worries for U.S. stocks was Vice Foreign Minister Xie Feng calling on the U.S. to change its “highly misguided mind-set and dangerous policy” in a meeting with Deputy Secretary of State
Wendy Sherman.

The

Nikkei 225

however rose 1% in Tokyo after a four-day break. The Stoxx Europe 600 slipped 0.1%.

The renewed China tensions come at the start of a busy week for U.S. investors. The Federal Reserve will begin its two-day monetary policy meeting on Tuesday, before delivering its decision on Wednesday. Many expect to see a discussion about tapering, i.e. a reduction of the size of the Fed’s current bond-purchasing program, one that could potentially put pressure on stock prices. Still, investors know that those talks have begun, so it’s unclear whether official confirmation of that will impact stocks. “With most investors expecting a late 2021 or early 2022 taper, this may not be much of a hawkish surprise for markets,” writes
Andrew Hollenhorst,
Citigroup economist. 

Earnings season moves into full swing this week, with releases from electric-vehicle maker

Tesla

(TSLA) after Monday’s close, and tech giants

Apple

(AAPL),

Alphabet

(GOOGL),

Amazon

(AMZN),

Microsoft

(MSFT) and

Facebook

(FB) all due to release figures this week.

While earnings have largely beat expectations, stocks aren’t fully reacting. With roughly a quarter of S&P 500 companies having reported, the aggregate earnings beat is by an 18% margin, according to Credit Suisse. But companies beating on earnings have seen their stocks rise just 0.28% in the day after the report on average heading into Monday’s trading, according to Wells Fargo data. Companies that missed estimates were seeing their shares fall 2.1% on average.

Bitcoin has gained 13% to $38,853.89 Monday after Amazon.com placed an advertisement for a cryptocurrency and blockchain lead, leading to speculation the online retail giant will start accepting payments.

Hasbro

 (HAS) stock rose 12.6% after reporting a profit of $1.05 a share, beating estimates of 47 cents a share, on sales of $1.3 billion, above expectations for $1.2 billion. 

Lockheed Martin

 (LMT) stock fell 3.4% after reporting a profit of $6.52 a share, missing estimates of $6.53, on sales of $17 billion, above expectations for $16.9 billion. 

D.R. Horton

 (DHI) stock fell 1.7% even after getting upgraded to Outperform from Neutral at Wedbush. 

Spotify Technology S.A.

 (SPOT) stock dropped 2.7% after getting downgraded to Sell from Neutral at Redburn. 

Lowe’s Cos.

(LOW) stock fell 1.7% after getting downgraded to Neutral from Outperform at Wedbush. 

Aon

 (AON) has gained 9.6% after its merger with

Willis Towers Watson

 (WLTW) was called off amid regulatory concerns. Willis Towers Watson stock has fallen 7%.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com